February 05, 2013

More on PTINs for previously unregulated tax return preparers

After considering the problems caused by incompetent or fraudulent tax return preparers who were not attorneys, accountants oradmitted to practice before the IRS as enrolled agents, the IRS released a study in 2010 on tax return preparation with recommendations for regulation of the industry. Amendments to Circular 230, the set of regulations providing standards for "practice" before the IRS under 31 U.S.C. section 330 (originally enacted in 1884), set forth various requirements to bring formerly unregulated tax return preparers under a set of standards, including use of preparer tax identification numbers (PTINs), competency testing, continuing education, and standards for the various work done in tax preparation.

Three tax return preparers that would be subject to those rules sued claiming that the new rules were beyond the IRS's authority. In Loving v. IRS, No. 12-385, 2013 WL 204667 (D.D.C. Jan. 18, 2013); ECF No. 21 (Order), the United States district court for the District of Columbia found in their favor, granting both declaratory and injunctive relief on the basis that tax return preparers do not "practice" before the IRS and hence cannot be regulated under the statute.

The IRS moved quickly for a stay of the injunction against enforcement of the tax return preparer regulations pending appeal to the D.C. Circuit. That motion was denied, but the court did modify the injunction "to make clear that its requirements are less burdensome than the IRS claims." See Loving v. IRS, No. 12-385 (D.D.C. Feb. 1, 2013) (link here is to BNA).

The court acknowledges that Congress specifically authorized the PTIN schema by statute in 26 U.S.C. section 6109(a)(4). The court claims that the PTIN provision does not fall within the scope of the injunction and the IRS may continue to provide PTINs, but it cannot condition eligibility on authorization to practice under the various conditions set out in Circular 230 as required in final regulation 1.6109-2(d). The court has enjhoined the requirement that tax return preparers who are not attorneys, CPAs, enrolled agents or enrolled actuaries must pay fees, pass a qualifying exam, and complete continuing education requirements.

It is to be hoped that the Circuit Court will quickly overturn this overreaching district court's "stuck in the past" interpretation of the 1884 statute. If that doesn't happen immediately, then Congress should act expeditiously to "clarify" current law by providing that the PTIN provision includes the ability of the IRS to regulate tax return preparation and that tax return preparation constitutes practice before the IRS. We have seen considerable evidence of tax return preparers who do not understand the tax laws or who intentionally misapply them (in the home office deduction, etc.). It is imperative that those who assist others in preparing tax returns demonstrate minimal competency in the tax law as demonstrated by the qualifying exam.

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More on PTINs for previously unregulated tax return preparers

After considering the problems caused by incompetent or fraudulent tax return preparers who were not attorneys, accountants oradmitted to practice before the IRS as enrolled agents, the IRS released a study in 2010 on tax return preparation with recommendations for regulation of the industry. Amendments to Circular 230, the set of regulations providing standards for "practice" before the IRS under 31 U.S.C. section 330 (originally enacted in 1884), set forth various requirements to bring formerly unregulated tax return preparers under a set of standards, including use of preparer tax identification numbers (PTINs), competency testing, continuing education, and standards for the various work done in tax preparation.

Three tax return preparers that would be subject to those rules sued claiming that the new rules were beyond the IRS's authority. In Loving v. IRS, No. 12-385, 2013 WL 204667 (D.D.C. Jan. 18, 2013); ECF No. 21 (Order), the United States district court for the District of Columbia found in their favor, granting both declaratory and injunctive relief on the basis that tax return preparers do not "practice" before the IRS and hence cannot be regulated under the statute.

The IRS moved quickly for a stay of the injunction against enforcement of the tax return preparer regulations pending appeal to the D.C. Circuit. That motion was denied, but the court did modify the injunction "to make clear that its requirements are less burdensome than the IRS claims." See Loving v. IRS, No. 12-385 (D.D.C. Feb. 1, 2013) (link here is to BNA).

The court acknowledges that Congress specifically authorized the PTIN schema by statute in 26 U.S.C. section 6109(a)(4). The court claims that the PTIN provision does not fall within the scope of the injunction and the IRS may continue to provide PTINs, but it cannot condition eligibility on authorization to practice under the various conditions set out in Circular 230 as required in final regulation 1.6109-2(d). The court has enjhoined the requirement that tax return preparers who are not attorneys, CPAs, enrolled agents or enrolled actuaries must pay fees, pass a qualifying exam, and complete continuing education requirements.

It is to be hoped that the Circuit Court will quickly overturn this overreaching district court's "stuck in the past" interpretation of the 1884 statute. If that doesn't happen immediately, then Congress should act expeditiously to "clarify" current law by providing that the PTIN provision includes the ability of the IRS to regulate tax return preparation and that tax return preparation constitutes practice before the IRS. We have seen considerable evidence of tax return preparers who do not understand the tax laws or who intentionally misapply them (in the home office deduction, etc.). It is imperative that those who assist others in preparing tax returns demonstrate minimal competency in the tax law as demonstrated by the qualifying exam.